MarketVVizard's Market Thoughts

Top 840. Jan 21, 2004 6:40 AM

» MarketVVizard - Burgers or beans? purchasing-power parity

[Thanks for posting the Roundtable Jen]
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Starbucks index

Burgers or beans?

Jan 15th 2004 From The Economist

A new theory is percolating through the foreign-exchange markets

STARBUCKS was due to open its first coffee shop in France on January 16th-a brave step, given that Paris invented café culture. Some of the French press are frothing at the mouth at the notion that Americans think they can make coffee. Jean-Paul Sartre, they scoff, would hardly have found the same inspiration slurping from a paper cup as sipping black coffee in Les Deux Magots. The Economist, however, has been pondering a more existential idea: what can the price of Starbucks coffee-now served in as many as 32 countries-tell us about exchange rates?

Readers may be familiar with The Economist's long-running Big Mac index: by comparing burger prices around the world, it offers a light-hearted guide to whether currencies are at their "correct" level against the dollar. Given the dollar's recent plunge against the euro and growing complaints that China is unfairly holding down its currency, we cannot resist testing whether a Starbucks "tall latte index" reaches the same conclusions as our Big Mac index. Both are based on the theory of purchasing-power parity (PPP). This says that, in the long run, exchange rates should move towards levels that equalise the prices of a basket of goods and services in different countries-ie, a dollar should buy the same everywhere.

By coincidence, the average price of a Starbucks tall latte in America is the same as the average price of a Big Mac, $2.80. By dividing the local currency price in each country by the dollar price we can calculate dollar PPPs. Comparing these with actual exchange rates is one test of whether a currency is undervalued or overvalued.

Our tall-latte index tells broadly the same story as the Big Mac index for most main currencies (see table; see article). Economic trouble is surely brewing in Europe: the euro (based on the average price of $2.93-$3.70-in member countries where Starbucks operates) is about 30% overvalued against the dollar. Sterling is 17% too strong. By both measures, the Swiss franc is the world's most overvalued currency. The Canadian, Australian and New Zealand dollars are still undervalued against the dollar despite their recent climb.

Where the two measures differ is in Asia. The burger index says the yen is 12% undervalued against the dollar; on the coffee standard, however, it is 13% overvalued. More startling is the Chinese yuan: it is 56% undervalued according to the Big Mac, but spot on its dollar PPP according to our Starbucks index. If so, American manufacturers have no grounds to complain about the yuan. The pricing differences probably reflect different competition in the markets for the two products.

Many readers will find burgernomics and lattenomics hard to swallow. Both are flawed as measures of PPP, because they are distorted by differences in the cost of non-tradables such as rents. Yet they are surely a more fun way to understand exchange rates than textbooks. Many readers ask why we don't we use the price of The Economist around the globe. Unlike the Big Mac or a tall latte, The Economist is not produced locally in lots of countries, so distribution accounts for a large chunk of its cost. Burgers and coffee are therefore likelier to give some clues about currencies.

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The Big Mac index

Jan 15th 2004 From The Economist print edition

The Economist's Big Mac index is based on the theory of "purchasing- power parity". Under PPP, exchange rates should adjust to equalise the prices of a basket of goods and services across countries. Our basket is the Big Mac. For example, the cheapest burger is in China, at $1.23, compared with an average American price of $2.80. This implies the yuan is 56% undervalued. Relative to its Big Mac PPP the euro is 24% overvalued against the dollar. In contrast, the yen is 12% undervalued.

-- posted by MarketVVizard

http://quote.bloomberg.com/apps/news?pid...

Top 841. Jan 22, 2004 8:03 AM

» Austrian - Paul O'Neill's Book

Interesting commentary regarding Paul O'Neill's book. My initial impressions were Mr. O'Neill had an ax to grind, did not like being pushed out, and his ego led him down a vindictive path. Having said all that, can something be learned from his tome? The book probably offers insights into the dynamics of the W administration and it's thought process. This insider’s view should make it easier to understand how Govt policy will be shaped under a second term, leading to investment ideas. The insights on Greenspan may alone make it worth the read.

Regards,

-- Austrian

For Paul O'Neill, It's Always About the Truth: Caroline Baum
Jan. 21 (Bloomberg) -- Paul O'Neill is having an impact.

It's not exactly the kind of impact he had hoped for when he signed on as the Bush administration's first Treasury secretary. Instead of being remembered for his role in shaping U.S. economic policy -- goals such as reforming the tax code and privatizing Social Security -- O'Neill is making headlines for his disparaging remarks about President George W. Bush and his inner circle as chronicled in Ron Suskind's new book, ``The Price of Loyalty.''

O'Neill, the main source for the book, describes the president as disengaged (``a blind man in a room full of deaf people''), the policy process as broken (``no policy apparatus to assess policy and deliberate effectively'') and policy decisions as divorced from analytical rigor (``efforts to collect evidence and construct smart policy are ... co-opted by the White House political team, or the vice president'').

For the former chief executive of Alcoa Inc., who is the kind of guy who makes the trains run on time -- O'Neill saw that 91.6 million tax-rebate checks were printed and mailed seven weeks after Bush signed the tax bill, not the three months the tax experts said it would take -- this was heresy.

Never one to hide his feelings or soft-pedal his views, this veteran of the Nixon and Ford administrations and adviser to President George H.W. Bush was sacked in December 2002 for insubordination: for opposing the third Bush tax cut.

Suicide Pact

O'Neill's old friend and partner in crime throughout the book is none other than Alan Greenspan, chairman of the Federal Reserve. The two colleagues from the Ford administration are soul mates, budget hawks and ``intellectual pragmatists.'' They make a ``secret pact'' during the tax-cut debate to promote the idea of triggers should the fiscal surpluses evaporate. (Greenspan doesn't just advise Congress on fiscal policy, he shapes it behind the scenes.)

The two data-driven colleagues meet regularly for breakfast to dig through the numbers and indulge in the kind of analytical give-and-take Suskind and O'Neill claim is missing in the Bush White House.

The book recounts a meeting where O'Neill and Greenspan, delving into the mechanics of Social Security privatization, delight in the fact that their respective research staffs have come up with the same cutoff age for moving workers into a new system where they can save for their own retirement.

```I got a cutoff age of 37,' O'Neill said.

``Greenspan laughed. `Me too.'''

Truths Self Evident

The transition cost of fully funding everyone over age 37 in the current system is estimated at $1 trillion. Both O'Neill and Greenspan would have preferred the surpluses be used to address the future strains on the retirement system rather than to cut taxes.

In his 23 months at the Treasury, a plum cabinet appointment, O'Neill was viewed as a loose cannon for speaking his mind -- bluntly, at all times.

He suggested that the value of the dollar is set in the foreign-exchange market, not by official government policy.

He called Congress's deliberations over a $100 billion stimulus plan in October 2001 ``show business.''

He argued that imposing steel tariffs was bad policy.

He went to Africa with rock star activist Bono and came back convinced U.S. aid could produce measurable results in poor nations, such as digging wells to provide potable water.

In all these cases, O'Neill was speaking the truth. You can call him naive for failing to understand the power of his words and position, but you can't accuse him of dishonesty.

Straight Shooter

That's why the common criticism of the book as a case of sour grapes, or revenge, on the part of a disgruntled government official doesn't ring true. Even O'Neill's detractors concede he's a man of integrity, a man who speaks his mind even if what comes out is clumsy at times or politically incorrect.

After seeking and speaking the truth his whole life, is it likely that at age 68 O'Neill would default to fabrication?

O'Neill never misrepresented himself -- his views or his M.O. -- when he was offered the job as Treasury secretary.

``I've been the boss for thirteen years,'' O'Neill told Bush and Vice President Dick Cheney. ``I like to come up with my own data and my own decisions. ... I like to say what I think, especially on subjects I've spent a few decades thinking through. In Washington these days, that might make me a dangerous man.''

Bush and Cheney laughed, according to Suskind, before assuring O'Neill that he was their man. At least until his brand of truth became a liability two years later.

Backpedaling

The same shoot-from-the-hip style that got O'Neill into trouble in Washington has already caught up with him on the book- promotion circuit. One week after the book's publication, O'Neill told the ``Today'' show's Katie Couric that if he could take back the ``vivid language'' he used to describe the president, he would.

``The Price of Loyalty'' has its share of inconsistencies, which may have been overlooked in the rush to publication. For example, on Jan. 30, 2001, 10 days after Bush took office, the president met with his National Security Council, of which O'Neill was a member, for the first time.

On page 73, Suskind writes: ``The President said little. He just nodded, with the same flat, unquestioning demeanor that O'Neill was familiar with.''

Familiar with? O'Neill had just met him. He'd been recommended for the Treasury post by his old friend Cheney. He had met the president briefly only once, in 1996, prior to being summoned to Washington in January 2001.

Capital Crime

Then there's the quote attributed to Greenspan at a Feb. 22, 2002, meeting of the president's working group on corporate governance convened following revelations of accounting irregularities at Enron, Global Crossing and Tyco, among others. Dismayed at the lack of outrage from the other members, Greenspan ``clapped his hand on the table and raised his voice. `There's been too much gaming of the system until it is broke. Capitalism is not working!'''

Can anyone imagine Greenspan, the Ayn Rand acolyte, uttering such a statement?

Reading the book, I kept asking myself why O'Neill would do it. Why would he provide 19,000 documents to Suskind and devote countless hours to sharing his recollections with the author? He doesn't need the money. He doesn't want the publicity. And he doesn't particularly care what people think of him. His cooperation could only damage his dignity. (O'Neill didn't return my calls, so I can only speculate.)

O'Neill seemed genuinely surprised (a hopeless naif?) when Lesley Stahl of ``60 Minutes'' told him his portrayal of the president in the book was unflattering. She asked if he was prepared for an attack by the administration.

``I can't imagine that I'm going to be attacked for telling the truth,'' O'Neill said. ``Why would I be attacked for telling the truth?''

-- posted by Austrian

Top 842. Jan 22, 2004 8:47 AM

» MarketVVizard - Re: Paul O'Neill's Book

Aw man Austrian, I was restraining myself all this time, and there you go busting open the floodgates! I guess I'm glad I can finally vent on the O'Neill story smile

From the WSJ The Virtue of Loyalty
Why Paul O'Neill is wrong. BY LAWRENCE B. LINDSEY

Wednesday, January 14, 2004 12:01 a.m. EST

Politics can be a rough sport. Paul O'Neill's departure after two years as Treasury secretary was not handled well. His bitterness, some would say, is quite understandable. But bitterness is a bad basis for objectivity, and any of Mr. O'Neill's reported views regarding President Bush and the conduct of economic policy do not comport with my recollection or with the public record. In fact, the president is what he claims to be--a compassionate conservative--and one with a grasp of how the world really works.

I first got to know President Bush in late 1997, when a mutual friend suggested we should meet. We had a series of meetings, each lasting several hours, during 1998 in the governor's mansion in Austin. The discussions were detailed and he was constantly asking penetrating questions, and telling me to "Say it in English" when my explanations were too wonky to be clear.

We shared a concern about the bubble that was developing in the financial markets. His concerns were not just theoretical. As a businessman, he'd suffered through the 1980s energy bubble in Texas and its collapse. Mr. Bush expressed particular concern at the human cost of the downturn, remembering families in Midland who lost their homes. This view that a bursting bubble was both an economic and human calamity shaped the Bush economic program both during the campaign and after his election.

On Dec. 1, 1999, the president unveiled his tax cut, saying that the economy might need an "insurance policy," and adding that "a president should hope for the best and prepare for the worst." This led to a very orthodox approach to handling economic weakness.

On the human side, the tax cut was disproportionately focused on middle-class families with children. The president overrode the recommendations of many of his advisers by explicitly eliminating the taxes paid by single parents supporting children on modest incomes. Being a single mom with kids, he explained, was the toughest job in America.

On Jan. 3, 2001, 2 1/2 weeks before taking office, the president held an economic summit in Austin. Businesspeople and others active in the economy came to give their candid and private views on the state of the economy. Although the official data at the time suggested all was well, these people said that the economy was sliding rapidly. This galvanized the president into pushing for rapid enactment of the "insurance policy" he had campaigned on. Interestingly, the Federal Reserve had reached the same conclusion, making the first of what turned out to be 13 cuts in the federal-funds rate, on the very same day.

Mr. O'Neill joined the administration in late January, without the benefit of this background. Convinced by his own judgment and by the official data that had been released during 2000 suggesting that the economy was doing fine, he sought to minimize the potential size of the tax cut. We now know, but did not know then, that the economy had started its decline in the quarter before the election. One of Mr. O'Neill's suggestions was to have the tax cut trigger off if the government ran a deficit. The view had two problems--one process, one policy. Upon taking office, the role of the so-called policy shop in the White House is to implement the program on which the president campaigned and was elected. In all three administrations in which I served, a record was kept of these commitments that may seem inflexible to some. But it is the best method I know of to ensure democratic accountability for those who staff a new administration. While flexibility develops over time as circumstances change, Mr. O'Neill was advancing an idea that had been rejected in the campaign at a time when the governing process is most focused on carrying out the will of the electorate.

Of even more concern to me was the policy implication of the O'Neill proposal. The tax cut was there to cushion the economic downturn resulting from the bubble's collapse. Mr. O'Neill's plan meant that if the downturn was so severe as to cause revenues to collapse, the tax cut would have to be cancelled just at the time the economy needed it the most!

More generally, the policy-making process can be a frustrating one, and Mr. O'Neill certainly experienced that. Many issues arise that do not fit neatly into a single cabinet department's jurisdiction. For example, a trade issue such as steel tariffs affects the Commerce Department and U.S. Trade Representative most directly. But the Labor Department can be involved if firms might fail and their pension plans might be taken over by the government. The Office of Management and Budget can be involved because of budget effects, and the Treasury and the Council of Economic Advisers because of the economic impact.

The White House policy staff organizes these disparate agencies on an issue-by-issue basis, trying to discover and stop unintended consequences from a policy action that a single agency may have overlooked. From time to time, this interagency process looks like a "power grab" to a cabinet officer who sees an issue as being part of his "turf." When disagreements can't be resolved by the policy officials, the buck stops with the president, who makes the final call. Though it can be messy and time-consuming, the country is better served if all angles on a given decision are thoroughly vetted before it is implemented. In two decades of being involved in this process, I've never known anyone who thought they "won" on all the issues they should have.

Two of Mr. O'Neill's most troubling assertions about the decision-making process--that the president is not engaged, and that he (Mr. O'Neill) was shut out of the process--are simply false. Every night, the president goes home with a two-inch binder known as the Briefing Book. It contains the background material for each of the president's numerous meetings the next day. Having been grilled on the details in those briefing memos, I can personally attest that Mr. Bush does his homework. Woe is any official who is not prepared, because the president will be. I imagine the case method Mr. Bush learned at Harvard Business School was good preparation.

Each page of that Briefing Book must be cleared through a complex process run by the staff secretary. The White House policy councils must assure the staff secretary that the views of the relevant agencies are accurately portrayed. And since Treasury officials are regularly included in the meetings with the president, they have their own check. If Mr. O'Neill felt that material got to the president that blindsided him, he should have inquired within his own department.

It is in the area of tax policy that Mr. O'Neill seems most aggrieved, both about policy and process. Although he had been ebullient about the economy during much of 2001, 9/11 convinced Mr. O'Neill that business confidence needed a boost. He suggested a 15-point rate cut in the corporation income tax rate for two years. We took the idea directly to the president. But it was a nonstarter--it just did not comport with the president's view of helping the economy by helping working families directly. This was a policy decision, not a process failure.

During 2002, it became clear that although the first round of tax cuts had ended the recession, the lingering effects of 9/11 and the bubble's burst were still weighing down the economy. Mr. O'Neill favored focusing resources on two big long-term reforms: a complete privatization of Social Security and the abolition of the corporation income tax. Both ideas were examined in detail. Instead, the president opted to propose an acceleration of the tax cuts, which were being phased in over several years. Passed in April, these tax cuts were instrumental in jump-starting the economy in the third quarter of 2003. The economy will continue growing in 2004 on the back of sound policy.

To some, including Mr. O'Neill, those tax cuts were a mistake because they did not make fundamental structural changes. The president instead opted to make modest positive structural improvements while putting money in people's pockets and sustaining economic growth in the near term. But more important, these could be enacted in a timely manner.

A look around the world shows that the president was right. The experience of Japan, which has struggled for a decade trying to make structural changes, is instructive. Its economy has stagnated because the political process has neglected achievable reforms that would also help sustain growth while bigger changes occurred. The obsession of Europe with deficits is also instructive. Needed tax reductions and structural reforms were neglected because of short-term revenue effects. European deficits are high and rising due to economic stagnation, while unemployment is in double digits. America is widely hailed as the world's growth engine because we followed the right policies. That is why the claim that the president's tax cut was supply-side ideology is so misplaced. The tax cuts met a demand-side need while advancing sensible improvements on the supply side. Radical supply-side ideas like abolishing the corporate income tax were vetted by the policy process and rejected. The process worked as it should, considering a full range of options and then selecting the most feasible.

In spite of our policy differences, Mr. O'Neill and I always got along on a personal basis. He is a smart, well-intentioned man with a long and distinguished career. He thinks big thoughts, and his efforts to combat AIDS and bring potable water to the people of Africa speak to a big heart. The month before he left office, he took considerable personal risk by flying to Afghanistan to advance America's war on terrorism. He, like others who leave private life at the peak of their careers, make a real sacrifice.

So, the circumstances of his departure were regrettable. But so too was his decision to make this book, "The Price of Loyalty," the capstone of his career. The book does a grave injustice to the president, to the truth, and to Mr. O'Neill himself.

Mr. Lindsey is a former director of the National Economic Council. ____________________________________________________
It is also worth nothing that O'Neil has backpedaled since causing this stir.

From Press Whines, ‘Bush Doesn’t Coddle Us’
"Though Bush has given interviews to Fox’s Brit Hume, NBC’s Tom Brokaw, CBS’s Scott Pelley, and ABC’s Diane Sawyer, he will not talk to either Dan Rather or Peter Jennings, who has interviewed every president since Richard Nixon."

Coincidence that Rather and Jennings aren't reporting the truth about the O'Neill story? smile

Paul O’Neill Backpedals, But CBS and ABC Pretend He Didn’t Tuesday morning on NBC’s Today, former Treasury Secretary Paul O’Neill backtracked from some of his more incendiary, widely-quoted comments as recited by former Wall Street Journal reporter Ron Suskind in a new book out this week. But while the NBC Nightly News, as well as CNN and FNC picked up on O’Neill’s backpedaling, neither ABC or CBS did so on Tuesday night.

During the Today interview with Katie Couric, O’Neill noted how "people are trying to make a case that I said the President was planning war in Iraq early in the administration," but argued that was simply "a continuation of work that had been going on in the Clinton administration with a notion that there needed to be regime change in Iraq." Picking up on how O’Neill said he didn’t see any evidence on WMD in Iraq, Couric contended: "An intelligent person would draw the conclusion that those charges were being trumped up by the administration as a rationale for the invasion." O’Neill countered: "No, that’s not what I’ve said." As for denigrating Bush as a "blind man in a room full of deaf people," backtracked: "I used some vivid language that if I could take it back, I’d take that back." And, despite it all, O’Neill maintained that he expects to vote for Bush this fall. (See item #2 below for the full quotes from O’Neill.)

Tuesday’s NBC Nightly News reflected O’Neill’s tone as anchor Tom Brokaw referred to how on Today he had "tempered his remarks" before David Gregory noted how he "appeared to backpedal." Gregory ran through O’Neill’s Today comments on how there was nothing wrong with planning for contingencies on Iraq, he wishes he hadn’t given Suskind the "blind man" remark and plans to vote for Bush. FNC’s Bret Baier related the same backtracking and, on CNN’s NewsNight, John King relayed all but how O’Neill would vote for Bush.

But while CNN’s King highlighted how former Joint Chiefs Chairman Hugh Shelton saw no difference in how the Bush team approached Iraq than did the Clinton administration, "as others in those early national security meetings took issue with suggestions Mr. Bush was predisposed to war," ABC’s Peter Jennings ignored what O’Neill said on Today and cited how an "official in the meetings," whom Jennings did not identify, "confirmed Mr. O’Neill’s account" of how "it was clear in meetings from the time Mr. Bush got to the White House that 'getting Saddam,’ as he put it, was the administration’s focus."

King reported on Tuesday’s NewsNight: "O'Neill's softer tone came as others in those early national security meetings took issue with suggestions Mr. Bush was predisposed to war. Retired Army General Hugh Shelton, the military's top officer at the time, tells CNN he 'saw nothing in the first six months of the Bush administration that would lead me to believe we were any closer to attacking Iraq than we had been in the previous administration.’"

ABC’s World News Tonight held its O’Neill update to this item read by Peter Jennings: "In Washington today, the debate continued about when President Bush decided to go into Iraq. His former Treasury Secretary Paul O’Neill says in a book that it was clear in meetings from the time Mr. Bush got to the White House that 'getting Saddam,’ as he put it, was the administration’s focus. The Defense Secretary, Donald Rumsfeld, said today he didn’t know what meetings Mr. O’Neill could have been in, but another official in the meetings confirmed Mr. O’Neill’s account. The President, this official told ABC’s John Cochran, ordered the Pentagon to explore the possibility of a ground invasion well before the U.S. was attacked on 9/11."

On Monday night’s CBS Evening News, Bill Plante recounted how on 60 Minutes the night before O’Neill had charged "that the President was already planning to get rid of Saddam Hussein long before 9/11" and that O'Neill described "a White House in which politics was the driving force. He likened the President at Cabinet meets to a blind man in a room full of deaf people."

But on Tuesday night, Plante ignored O’Neill’s backpedaling comments on the Today show, and instead, noting an investigation of whether O’Neill improperly released secret documents, asked: "Was this instant payback from the reputed masters of political hardball in the Bush administration?"

John Roberts set up the January 13 CBS Evening News story, as taken down by MRC analyst Brad Wilmouth: "More fallout today from Sunday's 60 Minutes interview with a former member of the Bush Cabinet faced now with a possible government inquiry. Paul O'Neill denied revealing classified material in the interview and in a book critical of the Bush White House. Bill Plante has more from Monterrey, Mexico, where the President attended a trade summit today."

Plante began: "Former Treasury Secretary Paul O'Neill criticizes President Bush's policies and leadership style on 60 Minutes. And one day later, the Treasury Department says it's looking into O'Neil's actions because 60 Minutes showed this document marked 'Secret' which O'Neill had supplied. Was this instant payback from the reputed masters of political hardball in the Bush administration? O'Neill said today that he got the documents from the Treasury Department's own lawyer." O'Neill on Today: "Under the law, he's not supposed to send me anything that isn't unclassified." Plante: "Treasury sources say Department lawyers simply asked for an inquiry, not an investigation, after seeing the document on TV, and only informed the White House after the fact. They say it wasn't payback, and O'Neill today agreed." O'Neill: "I don't think so. As I said, if I were Secretary of the Treasury, and these circumstances occurred, I would have asked the Inspector General to take a look at this." Plante: "But it's no surprise that some suspect payback. This White House has a reputation for getting even with those who cross it. Former diplomat Joseph Wilson, whose wife's CIA cover was blown to a reporter after he questioned the President's State of the Union claim that Iraq was attempting to buy uranium. Former Budget Director Larry Lindsey, who dared guess in advance that the Iraq war would be very costly -- publicly rebuffed, then fired. And with O'Neill already long gone, policy analyst Paul Light says this time the White House is clearly sending a message." Paul Light, New York University: "This particular investigation is clearly designed to send a signal to anybody else who talks with the press that they're up for the fight of their lives if they do so." Plante concluded: "It's always been the policy of this White House to let no slight go unanswered and no criticism unchallenged. The message, this president demands total loyalty -- and when he doesn't get it, there's a price to be paid. Bill Plante, CBS News, with the President in Monterrey, Mexico."

Keith Olbermann, on MSNBC’s Countdown, noted the backpedal, but focused his wrath on speed of the probe of O’Neill for possibly releasing secret documents compared to the slowness of the look into the Joe Wilson matter

Olbermann set up a Tuesday night segment with far-left New York Times columnist Paul Krugman, as caught by the MRC’s Brad Wilmouth: "More on the backpedal in a moment. First, if the rapidity with which the Treasury Department opened its investigation of O'Neill strikes you as contrasting with the measured pace the Justice Department used in opening its investigation of the leak about the CIA status of Ambassador Joe Wilson's wife, you are not alone. Columnist Paul Krugman noted the same thing today in his column in the New York Times, and he joins us now."

Olbermann proposed: "You observed today that thus far, administration officials have attacked Mr. O'Neill's character but haven't refuted any of his facts. Do you suppose that explains the same-day service on investigating what he did or did not do wrong?" Krugman: "Well, I'm not sure what it is exactly that they're, they're, whether it's the absence of a fact challenge. I'm not amazed. I think just on political grounds this was stupid. There's no possible way that they can improve their case by going after him on this, but it is kind of amazing, right? In what conceivable way did flashing a, the cover page of a secret document on TV endanger national security? There's something very wrong with these people." Olbermann: "Certainly, Mr. O'Neill has now distanced himself, almost as quickly as the investigation started, from these headlines that the war in Iraq was essentially planned before Mr. Bush's inaugural address was over. Did he back away? Was he pushed or did the media just blow the original story out of proportion?" Krugman: "Some of all of those. I mean, the story was not actually as clear-cut. I mean, it, even at the, I think that CBS picked the wrong thing. It's actually, the book is a damning indictment of the administration. But it's primarily about the dominance of politics over substantive policy, and there are a lot of places where he basically calls people liars, but he did not, the business about Iraq was more of an atmosphere thing than it is a specific charge that they were concocting the war as of January 2001." Olbermann prompted Krugman to expand his attack: "So in focusing on that headline about Iraq, you think that the rest of us have essentially missed the thrust of the book and the focus of the criticism of the administration?" Krugman: "Yeah, I mean there are killer quotes in there. There is Dick Cheney at the very same time that he's in public saying, 'I am a deficit hawk,' saying in private, 'Deficits don't matter.' There is George Bush saying in public that the vast majority of my tax cuts go to the bottom end of the spectrum and in private worrying in front of his advisors that, 'We've given everything to rich people, shouldn't we do something for the middle?' So those are the things that really should have been focused on, and Iraq, that the story about Iraq is, in the book, is that Iraq was top of the agenda in the very first meeting of the National Security Council under Bush, that Donald Rumsfeld is talking about the wonderful things that regime change in Iraq will do, and not at all about the threat that Iraq poses right from the beginning. That's where you should be going, not with this sort of gotcha stuff."

______________________________________________________
Another interesting observation: Couric: O’Neill Candid, But Stephanopoulos Was "Turncoat"
What a difference the target makes. Five years ago, when George Stephanopoulos wrote a book with critical insider accounts of President Clinton’s White House, NBC’s Katie Couric asserted the book "has many wondering whether he's a traitor or man of integrity," stressed how "a lot of people" see Stephanopoulos’ book as "creepy" and she told him that they view him "as a turncoat, a Linda Tripp type." She was also upset by the timing: "Why now George? Couldn’t this have waited until the President was out of office?"

But nearly five years later, in introducing a segment with Paul O’Neill, Couric wasn’t upset that O’Neill issued his charges in an election year as she recalled how "President Bush once praised Secretary O’Neill for his candor. He was called a straight shooter," but "today O’Neill is under investigation for a tell-all book that raises serious questions about the Bush administration."

Couric plugged the interview: "Does Mr. O’Neill think the administration’s threat of investigation is payback for his so-called honesty? We’ll talk about that and some other things."

And setting up her session with the author of the book which features O’Neill’s claims, Ron Suskind, Couric gushed about how O’Neill "had an unbelievable amount of documentation to back up some of his claims. He took copious notes, journal entries of almost every single meeting he had." Couric didn’t question the appropriateness of the book, as she prompted Suskind to expound on "the bombshells here."

Tim Graham, the MRC’s Director of Media Analysis, recalled how Couric treated Stephanopoulos and saw the contrast.

# Couric on March 12, 1999, the Friday morning in which she interviewed Stephanopoulos about his book, All Too Human. She announced at the top of the broadcast: "Good morning. He was once one of the President's most trusted aides, but his new book about his years on the inside has many wondering whether he's a traitor or man of integrity."

Couric’s first three questions to Stephanopoulos during the 7:30am half hour:

-- "A lot of people, George, think that this is just kinda creepy, that you've done this. They see you as a turncoat, a Linda Tripp type, if you will, who sort of ingratiated himself with the people inside the White House. They made you who you became and now all of a sudden, you're telling, you're airing all the dirty laundry and some people just think that's sorta gross."

-- "But aren't some situations off limits? I mean you talk very candidly about the President's relationship with Mrs. Clinton. You had entree to situations that most people wouldn't. I mean you were sitting there -- or standing there -- once when the President was in his boxer shorts and Hillary came in and they kissed and you witnessed conversations. It seems to me that, I mean is nothing sacred?"

-- "Why now George? Couldn’t this have waited until the President was out of office?"

For more on this Today and how the networks treated Stephanopoulos in 1999, see these three CyberAlerts: www.mrc.org And: www.mrc.org As well as: www.mrc.org

# Couric, January 12, 2004, the morning she interviewed former Wall Street Journal reporter Ron Suskind about his book, The Price of Loyalty: George W. Bush, the White House and the Education of Paul O'Neill. Couric’s questions reflected little doubt about the appropriateness or accuracy of Suskind’s claims as she simply sought to draw him out:

-- "How did this book, Ron, come about in the first place?" "He had an unbelievable amount of documentation to back up some of his claims. He took copious notes, journal entries of almost every single meeting he had, correct?"

-- "Who else did you talk to for this book, a number of other White House officials and employees?"

-- "Did they give the same kind of impressions and portrayal of President Bush as Mr. O'Neill has?"

-- "What in your view are the bombshells here? I mean we've heard splatterings throughout the weekend that President Bush has been off-quoted like a blind man in a room full of deaf people. Tell me, if you had to say in a nutshell how President Bush is portrayed in this book, what would you say?"

-- "Well, perhaps he was a good listener as some might say."

-- "And there was apparently, according to your book, no debate in the White House, or no debate on any clear issues. It was all based on ideology or sort of political expediency."

-- "Do you think that possibly Mr. O'Neill is naive or even arrogant as some have suggested? And I know that he served in the White House under the Ford and Nixon administrations but perhaps he didn't, wasn't ready for the rough and tumble world of politics as it exists today?"

-- "Two key areas, Ron, weapons of mass destruction, Saddam Hussein. You contend as Paul O'Neill contends that from day one, actually ten days after the inauguration Saddam Hussein was pretty much public enemy number one, prior to September 11th. Why? You talk about this being at the top of the agenda, but what was the motivation for it according to the Bush administration or Paul O'Neill's interpretation?"

-- "A top administration official says in Time magazine this week, that information was on a need to know basis. He wouldn't have been in a position to see it."

# Couric, January 13, 2004, setting up a session with O’Neill during the 7:30am half hour, the same time slot she spent with Stephanopoulos. MRC analyst Brian Boyd took down how, over video from 2001, Couric announced: "That is Paul O’Neill being sworn in as Secretary of the Treasury just about two years ago, January 30th of 2001. President Bush once praised Secretary O’Neill for his candor. He was called a straight shooter. Today O’Neill is under investigation for a tell-all book that raises serious questions about the Bush administration."

Couric added: "Coming up we’re going to be talking with Paul O’Neill and the author of the book that has caused so much controversy, Ron Suskind. Does Mr. O’Neill think the administration’s threat of investigation is payback for his so-called honesty? We’ll talk about that and some other things."

Couric’s questions to O’Neill initially focused on the investigation of whether he released secret documents and then she moved on to drawing him out with no substantive challenge to the accuracy, timing or appropriateness of his claims. Also below, O’Neill’s backpedaling answers which were highlighted in today’s CyberAlert item #1 above:

-- "Secretary O’Neill and Ron Suskind, good morning. Nice to have you both. Alright, let me ask you about the news of the morning. What do you think about this investigation being launched by the Department of Treasury that somehow you took classified documents and they were used in fact in the writing of this book?"

-- "So perhaps he’s [general counsel] the one who should be investigated?"

-- Couric: "The White House has said it would be irresponsible not to investigate this properly." O’Neill: "If I were Secretary of the Treasury, I would have done the same." Couric: "Is this payback? They insist it’s not but do you think in a way it is?" O’Neill: "I don’t think so....And another thing, today the book is going to be available and this red meat frenzy that’s occurred when people didn’t have anything except snippets. As an example, you know people are trying to make a case that I said the President was planning war in Iraq early in the administration. Actually there was a continuation of work that had been going on in the Clinton administration with a notion that there needed to be regime change in Iraq-" Couric: "So you see nothing wrong with that being at the top of the President’s agenda ten days after the inauguration?" O’Neill: "One of the candidates has said this confirms his worst suspicions. I’m amazed that anyone would think that our government on a continuing basis, across a political administrations doesn’t do contingency planning and look at circumstances. Saddam Hussein has been there forever. And so I was surprised, as I’ve said in the book, that Iraq was given such a high priority but I was not surprised that we were doing a continuation of planning that had been going on and continuing, looking at contingency options during the Clinton administration."

-- Couric: "At the same time though, Mr. O’Neill, you do talk about the fact that you were in National Security Council meetings for 23 months, you saw a variety of documents and no where did you ever see evidence-" O’Neill: "I think saw everything, unless something was withheld from me that I didn’t know about." Couric: "Well, we’ll get to that in a moment. But you say nowhere did you ever see evidence that Iraq possessed weapons of mass destruction. Well, an intelligent person would draw the conclusion that those charges were being trumped up by the administration as a rationale for the invasion." O’Neill: "No, that’s not what I’ve said. I have a very high standard for what represents evidence. If you told me that you put your hands on weapons of mass destruction, I’d probably believe you because you’re a public person. If someone that I believed in told me they’d actually seen it, that’s evidence for me. But it’s possible and certainly there were lots of inferences and circumstantial things that the National Security assessments pulled together in looking at this question of weapons of mass destruction, I’m not denying or game-saying that fact that one could make a case, what I’ve said is I never saw anything that I considered to be concrete evidence of weapons of mass destruction. And I think the fact that we haven’t found them makes the point. That also doesn’t make a point that we shouldn’t have gotten rid of Saddam Hussein. I’m not making that case. I’m making a really clear case that I know the difference between evidence and what is allusion and assertion and the rest. That’s my point." Couric: "Well do you think an invasion of a country should be based on allusion and assertion?" O’Neill: "Well, I think, I think one has to look very hard at the apparatus we have of the national intelligence assessments and it’s why we have presidents. At the end of the day, there’s one person who gets to decide. It’s what he considers to be convincing proof, a basis for going to war. And we elected George Bush and he decided it was good enough."

-- Couric: "Well let’s talk about some of your assessment of the president and, I guess, his leadership style, for lack of a better term. You do describe him as disengaged. You do describe, I think if I can sort of try to assess your description as policy having no process. Kind of being put together willy-nilly. You do describe him as a blind man in a room full of deaf people. So what are you saying about the way policy is established in this White House?" O’Neill: "Well, I’d say several things in response to your question. One, in hundreds of hours of conversation with the author one, let me not put this off on general case, I used some vivid language that if I could take it back, I’d take that back. Because it’s become the controversial centerpiece and I’m afraid that it will cause people to have an impression without actually reading the book. I hope people will read the book. But having said that, I want to also say this, this is Ron Suskind’s book. This is not my book. I have no economic interest in it contrary to the inference in the Wall Street Journal this morning. I hope people will read it because I think it makes a contribution to illuminating especially for young people what I consider to be a bi-partisan, broken political process." Couric: "What’s broken about it?" O’Neill: "Well, this is a very long story. I’ll tell you what’s broken about it, Katie. The conversation we have, for example, about the need for fundamental reform of Social Security and our health and medical care system and our tax reform system, which is what I would have written about if this were my book. We probably would have sold 25 copies to my extended family because don’t seem to have the interest, television doesn’t seem to have the interest in drilling into really consequential issues with any depth...."

-- Couric: "You do talk about some of the real philosophical differences you did have with this White House or at least some members of the White House vis-a-vi tax cuts." O’Neill: "I didn’t think the third tax cut was a good idea because I was pretty confident with over 40 years worth of experience and looking at the data that in the fourth quarter of 2003 the real growth rate would be 6 percent. It turned out to be 8.2 percent, I think the 2.2 percent came because of the third tax cut. But the price we’re going to pay for it is enormous because it reduces are fiscal flexibility to fix Social Security which we desperately need to do."

-- "You talk about after the Republicans won big in the mid-term elections, winning back the U.S. Senate that you sensed a change at the White House, a certain smugness, a sureness. And you said you once again pointed out the danger of rising deficits to Vice President Dick Cheney. But he said 'Reagan proved deficits don’t matter. We won the mid-terms, this is our due.’ You profess shock at that statement and I’m not an economic expert but isn’t there a pretty significant school of economic thought, Keynesian, that deficits are not that damaging to the overall economy? I mean why did you consider this so blasphemes?"

-- "Let me read the Wall Street Journal editorial, today. It says 'the non-Treasury Secretary, Mr. O’Neill cooperated fully with author Ron Suskind, a former Wall Street Journal reporter and well known Bush antagonist sharing recollections-" Suskind: "I disagree with that." Couric: "-and 19,000 documents as well as fact checking the final manuscript. After reading it we’re amazed he wasn’t fired sooner. Mr. Bush apparently thought he was getting a smart veteran of the Nixon and Ford administrations, a former CEO recommended by Dick Cheney and Alan Greenspan. The expectation was that Mr. O’Neill would be credible with business and politically astute. Instead he got a policy and political blunder-bus who must not have been paying attention during the 2000 election presidential campaign. Mr. O’Neill in the book reveals that he disagreed with much of the Bush agenda, especially with tax cuts. Three years later the record shows that Mr. Bush was right to ignore Mr. O’Neill’s counsel. The Bush tax cuts helped to make the recession one of the mildest on record despite the burst stock market bubble, corporate scandals, September 11, and war. And now the recovery is well underway with third quarter’s 8.2 percent growth rate, the fastest since 1984.’"

-- "We’re almost out of time, this is television after all. But I was surprised and many other people were when you told Lesley Stahl on 60 Minutes, you didn’t think this was an unflattering portrayal of President Bush." O’Neill: "I hope people will read the book, they can draw their own conclusion. You know-" Couric: "But you insisted, you didn’t think you seemed befuddled and most people watching that thought 'are you out of your mind?’" O’Neill: "Well go read the book, you’ve read the book." Couric: "Yes." O’Neill: "Do you think it is personally critical of the President? It’s not my intention to be personally critical of the President or of anyone else, but to cooperate with Ron and try and depict what turned out to be a chronicle of 23 months at the top of the government." Couric: "Very quickly, will you vote for President Bush in November?" O’Neill: "Probably. I don’t see anybody that strikes me as better prepared and more capable. But I really do think we have a bi-partisan problem of a broken political process and I think the American people need to demand more of people who would be their leaders."

-- posted by MarketVVizard

Top 843. Jan 22, 2004 9:01 AM

» MarketVVizard - Re: Paul O'Neill's Book

First I should note that I personally wouldn't care one bit IF Bush had been planning to invade Iraq before Sept 11. Saddam is a little Hitler (ask your liberal friends what weapons of mass destruction Hitler had?) guilty of ethnic cleansings and genocide. Many sources claim Saddam is responsible for the death of nearly 2 million people. We don't need to recap any of that. Any rational person should agree that Saddam should have been finished off years, if not decades, ago.

Having said all that. I think THIS report is pretty funny:
_____________________________________________________________
Lid Blown Off O'Neill/Suskind Hoax

Laurie Mylroie sent out an email about Paul O'Neill's appearance on 60 Minutes last night; she notes what appears to be a major error in Ron Suskind's book, which casts doubt on the credibility of both Suskind and O'Neill. Here is the key portion of Mylroie's email:

"In his appearance this evening on '60 Minutes,' Ron Suskind, author of The Price of Loyalty, based to a large extent on information from former Secretary of the Treasury Paul O'Neill, made an astonishing, very serious misstatement.

"Suskind claimed he has documents showing that preparations for the Iraq war were well underway before 9-11. He cited--and even showed--what he said was a Pentagon document, entitled, 'Foreign Suitors for Iraq Oilfield Contracts.' He claimed the document was about planning for post-war Iraq oil (CBS's promotional news story also contained that claim).

"But that is not a Pentagon document. It's from the Vice-President's Office. It was part of the Energy Project that was the focus of Dick Cheney's attention before the 9/11 strikes.

"And the document has nothing to do with post-war Iraq. It was part of a study of global oil supplies. Judicial Watch obtained it in a law suit and posted it, along with related documents, on its website at: http://www.judicialwatch.org/071703.c_.s... Indeed, when this story first broke yesterday, the Drudge Report had the Judicial Watch document linked (no one at CBS News saw that, so they could correct the error, when the show aired?)"

What Mylroie says about the "Foreign Suitors" document is correct. The Judicial Watch link still works as of this morning, and as you can easily see, the document, dated March 5, 2001, has nothing to do with post-war planning. It is merely a list of existing and proposed "Iraqi Oil & Gas Projects" as of that date. And it includes projects in Iraq by countries that obviously would not have been part of any "post-war" plans of the Bush administration, such as, for example, Vietnam.

So Suskind (and apparently O'Neill) misrepresented this document, which appears to be a significant part of their case, given that Suskind displayed in on 60 Minutes. It would not be possible for anyone operating in good faith to represent the document as Suskind did.

But the truth is even worse than Mylroie pointed out in her email. The CBS promo linked to above says that this document "includes a map of potential areas for exploration. 'It talks about contractors around the world from, you know, 30-40 countries. And which ones have what intentions,' says Suskind. 'On oil in Iraq.'"

True enough; there is a "map of potential areas for exploration" in Iraq here. But what Paul O'Neill and Ron Suskind don't tell you is that the very same set of documents that contain the Iraq map and the list of Iraqi oil projects contain the same maps and similar lists of projects for the United Arab Emirates and Saudi Arabia! When documents are produced in litigation (in this case, the Judicial Watch lawsuit relating to Cheney's energy task force), they are numbered sequentially. The two-page "Iraqi Oil Suitors" document that Suskind breathlessly touts is numbered DOC044-0006 through DOC044-0007. The Iraq oil map comes right before the list of Iraqi projects; it is numbered DOC044-0005.

DOC044-0001 is a map of oil fields in the United Arab Emirates. DOC044-0002 is a list of oil and gas development projects then going on in the United Arab Emirates. DOC044-0003 is a map of oil fields in Saudi Arabia. DOC044-0004 is a list of oil and gas projects in Saudi Arabia. So the "smoking gun" documents that Suskind and O'Neill claim prove that the administration was planning to invade Iraq in March 2001 are part of a package that includes identical documents relating to the United Arab Emirates and Saudi Arabia. Does Paul O'Neill claim the administration was planning on invading them, too? Or, as Mylroie says, was this merely part of the administration's analysis of sources of energy in the 21st century?

There is only one possible conclusion: Paul O'Neill and Ron Suskind are attempting to perpetrate a massive hoax on the American people.

UPDATE: Paul Krugman is ecstatic about O'Neill's allegations, and views them as vindicating his three years of over-the-top Bush hatred. Needless to say, Krugman has nothing to say about O'Neill's and Suskind's fraudulent misrepresentation of the documents on which their claims are based. The battle is joined: the New York Times propagates lies, the blogosphere points out undeniable facts that are inconvenient for the left. Spread the word.

FURTHER UPDATE: Judicial Watch notes that these documents originated in the Commerce Department, not Vice-President Cheney's office, but were turned over to Judicial Watch in connection with that organization's lawsuit against Cheney relating to the Vice-President's energy task force. This, of course, has no bearing on the point we make about Suskind and O'Neill's fraudulent use of these documents, which relate generically to world energy supplies and had nothing to do with a purported plan to invade (or reconstruct) Iraq. Indeed, the documents' origin in the Commerce Department underlines the absurdity of Suskind's and CBS's claim that they demonstrate the existence of a scheme to invade Iraq.

-- posted by MarketVVizard

Top 844. Jan 22, 2004 9:20 AM

» MarketVVizard - Trades

Due to put/call finally spiking and rising above 1 for the first time in a long time, I covered the QQQ short (tiny loss). Market still looks quite bearish to me though. Money pouring back into treasuries this morning. I still have the NVLS short / covered put trade on, and it is now nicely in the money. Up a few percent for the year, nothing to write home about. Still trying to figure out what I want to do with the bulk of my funds.

-- posted by MarketVVizard

Top 845. Jan 24, 2004 7:45 PM

» Jen_ - Re: Barron's Round Table - Pt 2

.
above is Barron's Round Table Pt 1 and here is Pt 2 from 1/26 Barron's....

The Smart Set

From TIPS to nail polish, four market seers share their best investments

By LAUREN R. RUBLIN

IN WASHINGTON, THEY get the State of the Union. But in New York on Jan. 12 we got the State of the World through the eyes of 11 of the planet's shrewdest investors. The members of our annual Roundtable opined in last week's Barron's on the big trends driving world economies, financial markets, interest rates, currencies and everything between. This week the foursome pictured nearby share their stock and bond recommendations for 2004.

Oscar Schafer of New York's O.S.S. Capital never attends a Roundtable without a swell tie, a sly smile and a stack of notes on stocks that are primed for liftoff -- like last year's quartet, which returned an average 59%. This year Oscar shares his views on printing, medicine, music and gambling. Well, at least on stocks that relate to same.

In 2003 your favorite financial newsweekly dubbed Pimco's Bill Gross the "king of bonds." This year, natch, we got the royal treatment -- penetrating insights, graciously delivered, on the unsettling outlook for bonds and the prospects for a clutch of funds that are likely to outshine them. We felt a twinge of guilt for luring Bill from the balmy Left Coast to the frigid Northeast. Happily, the feeling passed as soon as he started talking.

Trust Marc Faber -- Swiss-born, Hong Kong-based, and straight off a plane from Argentina -- to give us the scoop on Asia and what its boom means for worlds old and new. Marc is fond of Thailand, gold and coffee -- by the warehouse. But he's fearful of bubbles brewing in China and in semiconductor stocks.

This week's Roundtable installment, Part II of three, concludes with the words -- and act -- of Mario Gabelli. No one knows media better than Mario, and no one seems to enjoy the show more. Eclectic as always, his latest picks range from TV broadcasters to auto-parts makers, air conditioners and, ahem, nail polish. Then there's that skeleton he brought to the fest.

Curious? Please read on.

Oscar Schafer

Barron's: Oscar, you had a splendid year. What have you got for us now?
Schafer: Last year I recommended R.H. Donnelley, the Yellow Pages publisher founded by Reuben H. Donnelley. This year I'm recommending R.R. Donnelley & Sons, founded by Reuben's father, Richard. Donnelley is merging with Moore Wallace in a deal that will create the premier North American printing company. You can own either stock. We own Moore Wallace. The transaction is expected to close in late February, and the resulting company will be called R.R. Donnelley.
R.R. Donnelley is paying a premium to acquire Moore Wallace, even though Moore Wallace management will run the combined company. But it should be a home run for both companies' shareholders, as the talented Moore Wallace team cuts costs and drives up margins. Management has estimated cost savings of at least $100 million in the first 12 to 24 months after the deal closes. But it has a history of conservative guidance.

Q: Other than cost-cutting, how's the business?
Schafer: The tone of business continues to improve. Over the past several years revenues for each company have declined by low single digits. But with the economy picking up, and with the benefit of synergies, this will reverse. Donnelley's revenue post-merger should rise roughly 2% to 4% annually over the next few years. The combined companies will earn more than $2.25 a share once they are fully integrated, and generate free cash flow of more than $2.70. Donnelley is selling for $31. I have a one-year target of 38, or 17 times earnings and 14 times free cash flow. This translates into a target price of 24 for Moore Wallace, which is selling around 19. The proposed exchange ratio is 0.63 of an R.R. Donnelley share for each share of Moore Wallace.

Q: What does Moore Wallace do?
Schafer: It specializes in printed labels and business forms. The business has been declining because of the Internet and other trends. But these guys are spectacular at cutting costs and have underestimated savings.
My second stock is EMI, the only pure play in the music business. People around the world are listening to more music than ever before, but annual industry sales have gone from $34 billion to $28 billion due to the illegal downloading of music from the Internet. However, a combination of coordinated legal action against some major pirates, plus the development of technology such as water marking and encryption, seem to have slowed online thefts. Last fall, for example, 14% of Internet users downloaded, versus 29% in the spring of '03. In the last four months of 2003, legitimate music sales in the U.S. increased nearly 5% after declining 11% in the first half. Apple's iTunes, in its new joint venture with Hewlett-Packard, and hardware from Dell Computer and Microsoft will spur legal downloads at 99 cents a song, which will help grow the business legitimately. EMI, a British company, is the prime beneficiary of these trends. It not only produces music, but gets residual royalties from the delivery of music via CDs and DVDs, as well as from music played in movies and video games and from sheet music. Another growing source of revenue is ring tones for cellphones.

Q: Still, it's a tough industry.
Schafer: EMI had a near-death experience in 2001 when debt threatened the company's financial existence. The stock sold for only 78 pence [$1.42] last year, down from 810p at the height of the Internet boom in 2000. But new management has installed more professional controls, restructured the debt while retaining the creativity, and focused more on building a well-oiled machine than catering solely to creative geniuses. EMI twice tried to merge, first with Germany's Bertelsmann, which was rejected on antitrust grounds. The second, last year's deal to merge with AOL Time Warner's music division, ended when it was outbid by a group led by Edgar Bronfman Jr. Recently, however, EMI's market share in the U.S. has risen to 10% from 8%, and the company is cutting costs. In the year ending March '04, reductions in variable and fixed costs will result in a £150 million swing. The company's publishing business is a cash cow.

Oscar Schafer's Picks

Company Ticker Price 1/9
R.R. Donnelley & Sons DNY $31.00
Noven Pharmaceuticals NOVN $16.80
EMI Group EMI LN 200 pence
Wynn Resorts WYNN $27.92

Q: Where is the stock now?
Schafer: The stock sells for 200p, or about 12 times expected earnings and a little over eight times enterprise value to Ebitda [earnings before interest, taxes, depreciation and amortization]. Bronfman's group agreed to pay $2.6 billion, or 9.5 times Ebitda, for Warner Music. Apply that multiple to EMI and you would get a share price of 272p on 788 million shares outstanding. And that's before the business shows sustainable growth.
Gabelli: Alain Levy, head of EMI's recorded music group, is a good businessman.
Schafer: The chairman, who came from United Biscuits, is very good with people and understands business. The CFO is world-class, and Martin Bandier, who runs the publishing business, is really special.

Q: How much profit can the company make from selling songs off the 'Net versus selling CDs?
Gabelli: You mean selling songs versus having them pirated.
Schafer: A customer might download only one or two songs versus buying 14 or so per CD. But there is no distribution cost. Thus, margins are higher on downloaded songs, but revenue is lower. As Mario notes, however, many songs were stolen. Last year more songs were downloaded than were bought legitimately. In China 90% of downloaded music is illegal. If that can be lowered to 75%, it would mean a big increase for music producers.
Gabelli: We're starting to see some movement back to honesty on the part of listeners, but multiples in the industry still suggest the technology is free. It's a good story.
Schafer: My third stock is Noven Pharmaceuticals, a leading manufacturer of patches for drug delivery. The company's patches are the size of postage stamps, about a third the size of the next-smallest patch on the market. The current product line consists primarily of transdermal products for HRT, or hormone-replacement therapy, which has been hurt by the publicity surrounding the potential dangers of such drugs for women. A study in July 2002 that called into question the risk-reward profile of certain HRT drugs led to the collapse of most of the market, though Noven's main HRT product has grown.
My interest is in the company's pipeline. Noven has developed a patch for attention-deficit hyperactivity disorder. It filed a new-drug application, or NDA, which initially was rejected by the Food and Drug Administration. Now it is working with Shire Pharmaceuticals to resubmit the application, most likely later this year, with approval expected in 2005. Shire has said the product, which has many advances over current ADHD treatments, could be a $150 million business. The ADHD market is $1.5 billion.

Q: What does this mean for Noven?
Schafer: Shire is committed to paying Noven up to $150 million, including $25 million upon closing, $50 million upon approval by the FDA and another $75 million upon reaching certain sales levels. Noven already has received the first $25 million. It will receive ongoing profits from a manufacturing agreement, which could generate at least 25 cents a share. At the end of the third quarter the company had $87 million, or about $4 a share, in cash. The stock sells for 16.80. Meanwhile, Noven has filed an abbreviated NDA for a fentanyl patch. It's the generic equivalent of Johnson & Johnson's Duragesic painkiller and should be on the market early in 2005.

Q: How big could it be?
Schafer: The company could earn more than a dollar a share from this patch alone in a few years. In the pipeline are more than 20 other products, for hypertension, asthma, female sexual dysfunction, oncology and even motion sickness. Noven has announced a partnership with Procter & Gamble for an undisclosed compound. At the end of next year the company could have $200 million, or nearly $9 a share, of cash. That means you're paying about $7 a share for potential earnings of more than $1.50 and getting the rest of the pipeline free.

Q: That sounds promising. What's next?
Schafer: Wynn Resorts is a gaming company with a market value of $2.3 billion. It went public in late 2002 and is run by the legendary Steve Wynn. When Wynn announced his plans to open the Mirage in the late 'Eighties, nobody thought a casino could outdo Caesars Palace, which was Las Vegas' most profitable casino, generating $100 million of Ebitda. In its first year, Mirage generated $188 million of Ebitda and a 22% return on invested capital. Wynn's most recent property prior to launching Wynn Resorts was the Bellagio, which opened in 1998 and is currently the most profitable property in Las Vegas, with Ebitda of about $325 million expected this year. Wynn sold Mirage Resorts to MGM Grand in 2000. I believe Steve Wynn will once again succeed in creating Las Vegas' most successful property when he opens Wynn Las Vegas in April 2005 for a total cost of $2.4 billion. It will feature 2,700 rooms, a 118,000-square-foot casino, 18 food and beverage outlets and an 18-hole on-site championship golf course.

Q: How did Mirage shareholders do?
Schafer: They made over 20% compounded annually.
Gabelli: The stock fell to 12. [MGM Chairman Kirk] Kerkorian dropped a tender offer at $17, and did a deal at $21-$22.
Schafer: Wynn's reputation should allow him to cherry-pick the best dealers, casino hosts and employees in Las Vegas. Wynn Las Vegas should be able to generate about $350 million in Ebitda. Once the 20 adjacent acres are developed, the property could generate more than $400 million.
Despite the glitz of Wynn Las Vegas, the main reason I own Wynn Resorts is because the company owns an 82.5% interest in Wynn Macau. It holds one of three concessions granted by the Chinese government to gaming operators on Macau, China's gambling mecca, located 37 miles southwest of Hong Kong. Prior to Steve Wynn and Venetian owner Sheldon Adelson receiving concessions, the Macau gaming market was a monopoly controlled by Chinese billionaire Stanley Ho. Macau is an extraordinary market within three hours of 100 million people. With only a few hundred table games and practically no slot machines, it is generating more than $4 billion in gaming wins, compared with $5 billion on the Las Vegas strip, which has thousands of tables and tens of thousands of slots. In Las Vegas the win per table per day is $2,000. In Macau, it is more than $20,000. People line up for hours just to get to the tables. Thanks to the easing of restrictions on travel for mainland Chinese and the opening of Hong Kong Disneyland by 2006, the Macau gaming market could grow faster than 20% for the next three to five years. Recent news reports indicate the passage of critical gaming legislation is imminent, which will permit Wynn Resorts to break ground on a $500 million investment in the company's initial property. When the property opens in 2006, it could generate $250 million in Ebitda, possibly more. Wynn continues to prowl the globe for opportunities.

Q: What else has he found?
Schafer: Wynn Resorts has an alliance with the owners of the Casino de Monte-Carlo and may launch a new property in that market. It also is considered a front-runner in bidding for the 10th gaming license in Illinois, and the company will be a major player when gaming is expanded in the U.K. Putting a 10 multiple on $600 million of Ebitda, and subtracting $1.7 billion in debt, gives a stock a target price of 46. It currently trades for 28. Wynn could earn at least $2.25 a share in 2007. With a 20 multiple to account for substantial growth opportunities, the stock could be 45 to 50 within 12 to 24 months. Marc, what do you think of Macau's gambling potential?
Faber: There is plenty of potential in Macau for everything. It is a city of sin. But over time the Chinese might also open another gambling center in China.
Schafer: What would you think if Steve Wynn had a joint venture with the Chinese government?
Faber: Everybody has a joint venture with the Chinese government because nobody knows who the Chinese government is. They have joint ventures with every Tom, Dick and Harry, so I wouldn't think much of that. But Steve Wynn is an important figure in the gaming industry worldwide, and he is smarter than most other players. Maybe he can pull it off. But I wouldn't buy the stock on Macau alone. The property isn't going to open before 2006. Maybe the stock goes to 40 or 50, but there is also some risk.
Schafer: Nonetheless, Wynn's will be helped by the perception of Macau and by the opening of the Venetian in Macau this year. People then will dream about what Wynn Resorts can do. That's my bet.

Bill Gross

Q: In that case, let's move on to Bill.
Gross: We are in a period of reflation that ultimately and most properly leads to higher inflation. The mechanism through which this occurs is very low short-term interest rates, in some cases negative rates. This is a time to be fairly defensive in bonds or to find bond investments that take advantage of higher inflation. My recommendations take that into consideration. My first pick is BlackRock Municipal Target Term Trust '06. BlackRock is a competitor to Pimco, and a fine manager of institutional monies and to some extent municipal funds. Muni Term Trust trades on the New York Stock Exchange, like almost all closed-end municipal funds. One condition of my recommendations is that individuals should be able to buy or sell them.

Bill Gross' Picks

Issue Ticker Price 1/9 Yield 1/9
BlackRock Muni Target Term Trust (2006) BMN $11.00 5.23%
PIMCO Municipal Income Fund II PML 14.48 6.99
iShares Lehman TIPS Bond Fund TIP 102.46 2%+CPI
PIMCO Commod Real Return Strategy Fund PCRIX 14.45 8.21
Aberdeen Asia Pacific Income Fund FAX 6.40 6.56
Long
iShares S&P 500/Barra Value Index Fund IVE 56.11 1.58
Short
iShares Russell 2000 Growth Fund IWO 61.85 0.31

Q: That's very fair of you.
Gross: BlackRock Muni Target Term Trust '06 in effect has a 2006 maturity. That's when BlackRock will close it. Investors can be pretty assured they're buying a 2-to-2½-year piece of paper, which is defensive relative to the market.
Usually, closed-ends sell at a discount to net asset value. This one trades close to parity -- it's got about a 1% discount -- because of its short maturity. These are triple-A-rated and double-A pieces of paper, so there shouldn't be any principal risk.The trust is a composite of national municipal obligations. It yielded 5.23% tax-free in the past 12 months, though that is not assured until maturity because the price probably will amortize downward to about 10-10.50 a share. Currently, the shares are 11. You'll lose some price but get it back in income, and probably wind up with a 3% to 4% yield over the next two to three years. It beats a money-market-fund yield of 1% or so.
Gabelli: Do they use leverage?
Gross: They leverage about 35%. This means they borrow in the money markets at 1% and reinvest at 4% to 5%, which gives you a higher yield.
Schafer: You're bearish on interest rates. What does that mean for their borrowing costs and returns?
Gross: If their borrowing costs in the next two years go up slightly, it is a negative but a minor one. I'm forecasting a 2% federal-funds rate, which is neither here nor there.
My second idea is a Pimco fund -- Pimco Municipal Income Fund II. We've issued three in all. The symbol is PML. It has more risk than the Black Rock because it buys longer-term bonds. The fund has a maturity similar to a 10-to-15-year Treasury note or bond. If interest rates went up by 0.75 of a percentage point -- my forecast for the 10-year -- with a duration of about six years you'd have a loss of four or five percentage points. There is some price risk but a lot of yield.
Schafer: Is this leveraged too?
Gross: It is leveraged, as are most closed-end funds, by 35%, meaning we borrow at a little less than 1% in the preferred money markets and reinvest at 5%-5.50%, producing of yield of about 7%. This one trades at a discount of about 5% to net asset value. You're buying a dollar of assets for 95 cents. These funds are issued at par, or asset value, but quickly trade at a discount to reflect the commission on the initial offering.
Gabelli: How big is the fund?
Gross: It's pretty big, about $800 million, and has had an excellent record for the year-and-a-half it's been outstanding. [Pimco Municipal Income Fund II returned about 8% in 2003.] Moving on to TIPS, or Treasury Inflation Protected Securities, individuals can buy them through the Treasury or banks. But the best way to buy them is through iShares, an exchange-traded fund [ETF]. The iShares Lehman TIPS Bond Fund came out in December. The symbol is TIP, and it's about as good a tip as I can give. It's a portfolio of inflation-protected securities, with an average maturity of about 10 years. At the moment it yields 2%, plus inflation, as measured by the CPI [consumer-price index]. It has a very low expense ratio, 0.2%, which is important in bonds. All iShares and ETFs are very competitive on the cost side. Investors should begin to look at ETFs in general, not just for TIPS. Potentially, this is the wave of the future in terms of keeping costs down.
Archie MacAllaster: When they pay it off, do you get a capital gain?
Gabelli: You don't get a capital gain. You get imputed interest, and you pay current tax on it.
Gross: A TIPS with a 10-year maturity, like the iShares Lehman, is a fairly volatile investment. It might be for widows and orphans, but they won't sleep soundly regarding everyday net asset value. That value can decline, just like bonds can go down in price as real interest rates change. So don't think this vehicle is akin to a money-market instrument. It is not.
I've already mentioned the world is reflating. My next pick is a unique play on that theme, and yours truly is invested in it. It's called the Pimco Commodity Real Return Strategy Fund, PCRIX. It's not a closed-end; you have to buy it through brokerage or mutual-fund channels.

Q:What's unique about it?
Gross: It combines two inflation-protection vehicles. One is TIPS. The fund invests much like iShares, in 10-year average-maturity TIPS. In addition, it invests in a bag of commodity futures. It protects your principal from inflation, while exposing you to accelerating commodity prices. Again, this isn't for the faint-hearted. It can rally 1% or 2% a day, or go down 1% or 2% a day. But over time, it should be an excellent hedge against reflation.
Gabelli: If commodities go down, you get a double-edged sword on the downside.
Gross: But we think it should work out.

Q: We take it TIPS have been a lousy investment for four or five years.
Gross: They were a lousy investment when they first came out, at relatively low interest rates. Then rates went higher and prices came down. In the first year or two, investors became very discouraged. In the past three or four years, as real interest rates have come down to 2.50% from 4.50% on the long bond, they've been one of the best bond investments going. The future of TIPS depends on where real interest rates go over the next several years. The U.S. Fed and other central banks are in a corner. They have to maintain very low real rates because of high levels of debt.
Shifting gears, professional and individual investors read all the time about the declining dollar. They might understand it, or they might not, but very few know how to take advantage of it. They don't know how to short the dollar or go long the euro. You either have to go into the commodities market, which they don't understand, or put up large amounts of margin. So while many people might want to hop aboard the trend, they don't know how to do it.

Q: Enlighten them, please.
Gross: I found what I think is one of the best ways to do it, via the Aberdeen Asia Pacific Income Fund. The symbol is FAX, and it trades on the NYSE at a big discount to net asset value. This is a government-bond fund. It invests 50% in Australian bonds, 20% in South Korea, 10% in the Philippines and so on through the Asia Pacific region.
For the most part, aside from the Philippines, it is in high-quality investments, rated triple-A and double-A. The kicker is the bonds are denominated in foreign currencies -- the Australian dollar and other Asian currencies. Should the Chinese be forced to revalue the renminbi, other Asian currencies should benefit relative to the dollar. So this is a relatively pure play on a continuing dollar devaluation. It currently yields 6.6%, which is fairly ominous. You can buy the stock through a broker and watch it go up and down based on the fortunes of the dollar.
Scott Black: Do you worry about sovereign risk in South Korea if the "Axis of Evil" takes us to North Korea?
Gross: There is some risk in South Korea and the Philippines, which is close to a junk-bond category. But the fund is weighted toward Australia.
Felix Zulauf: South Korea is probably the mostly leveraged economy in the world. They haven't worked off any debt. They're just piling it up.
Faber: The idea is excellent, but the Australian and New Zealand dollars have had huge moves against the dollar, thanks to the influx of funds into resource-based economies. The Australian dollar went from 52 cents per U.S. dollar to 77 cents today. The manufacturing sector in Australia is suffering very badly. In the context of the nation's economy, its currency is overvalued.
Gross: Australia and New Zealand historically have had some of the highest real interest rates in the world. That is another reason their currencies have appreciated. When you compare their new 4% real interest rates to the U.S.'s negative interest rate, their currencies should appreciate. But my idea in recommending Pimco Commodity Real Return Strategy is to capitalize on its convenience as a way to short the dollar, even with all the risks we've talked about.
For my last pick, I've got a long and a short. I'm a history buff, and history is a great educator. Mark Twain said it doesn't repeat but it rhymes.
I've gone back over the past 100 years with two specific sources. One is Triumph of the Optimists, an English book, which gives you anything that you'd want to know in the financial markets. If you wanted to know how well South African bonds did in the 1940s, you could find it in this book.
My other source is the Ibbotson annual yearbook, updated yearly by Roger Ibbotson and Rex Sinquefield. It contains lots of information about bonds, stocks, real interest rates and inflation around the world. History shows the annual return for growth stocks since 1927 has been 9%, while the annual return for value stocks, defined as stocks selling for low multiples of book value, has been 12.5%. That's a 3.5% differential in the camp of value.

Q: What is your trade?
Gross: Go long the iShares S&P 500/Barra Value Index Fund, the IVE, which trades in New York. It has a market value of $1.5 billion and a yield of 1.88%, and is an index of value stocks as defined by the S&P 500 and Barra.
Against that, sell the iShares Russell 2000 Growth Fund, IWO, with a market value of $1.59 billion. It has a yield of 0.44%, so you're making 1.44% just from the initial arbitrage. Plus, your expense ratio is higher on the Russell 2000 Growth. In a bull market, growth stocks tend to outperform value stocks. So this is a bear-market play down the road.

Q: Will you give the readers a refund if it doesn't work?
Gross: Of course not!
MacAllaster: Bill, have you ever owned any stock directly? Probably not. That's why he's rich.
Gross: I have. They tend to be high-dividend-yielding stocks like Philip Morris [now Altria], but I didn't bring any today.

Marc Faber

Q: That's OK. Marc, you're on.
Faber: The Asian economic bloc has become very important. To give you some figures, China publishes 82 million newspapers every day. Japan is No. 2, with 70 million papers published a day. India publishes 58 million, the U.S. 55 million. Or take smokers. Thirty percent of the world's smokers, more than 330 million people, are in China. China produces and consumes five times more cement than the U.S. Officially, the U.S. is an $11 trillion economy. China is a $1.2 trillion economy, but that doesn't reflect the reality. Now throw in Japan and India, Vietnam, Indonesia. Altogether, Asia has 3.6 billion people.

Next, look at market capitalization. The whole of Asia is 12.5% of the Morgan Stanley Free World Index, while the U.S. is 53%. How much longer can the imbalance last? In five to 10 years, Asian markets will be worth about 30% of the world and the U.S. market 20%-25%. This can happen through a massive decline in either the U.S. stock market or the U.S. dollar. If we talk about value outperforming growth, you should invest in Asia and short the S&P 500. Last year Asia went up dramatically, and Asian markets could have some turbulence in the near term. The U.S. dollar could rebound for the next three months. Bonds could rebound, and stocks and commodities could disappoint. Long term, however, the size and growth of the Chinese economy and increased living standards will lead to higher purchases of commodities throughout Asia. Demand for oil in Asia could increase substantially, to 35 to 50 million barrels a day.

Marc Faber's Picks…

Company Ticker Price 1/9
Energy
Energy Select Sector SPDR XLE $27.97
Schlumberger SLB 54.00
Diamond Offshore DO 21.94
ChevronTexaco CVX 85.12
Anadarko Petroleum APC 52.06
Other commodities
Coffee (per pound)* 0.68
Silver (per ounce) 6.46
Asia
Thai Military Bank TB baht 5.65
Bangkok Dusit Medical Services BGH baht 91.0
Bumrudgrad Hospital BH baht 67.0
Long
iShares MSCI Malaysia (Free) Index EWM $6.73
Short
China Fund CHN 43.30
and Pans
U.S.Homebuilders
Centex CTX $101.70
Hovnanian HOV 77.80
Toll Brothers TOL 39.52
Lennar LEN/B 43.75
Semiconductor Stocks
Semiconductor HLDRS SMH 44.75
Phila. Stock Exch. Semi. Index SOX 543.31

*Futures contract

Q: So you're recommending energy stocks?
Faber: The world oil market now produces 78 million barrels of oil a day. I doubt the industry can increase production significantly over the next few years. Many oil fields in Saudi Arabia don't contain as much oil as the Saudis seem to claim. In addition, the Saudis have an unstable political situation. The country is like France a week before the French Revolution under Louis XVI. The situation in Iraq will stay tense. This is the opportunity of a lifetime for the Kurds to go independent. If they don't do it now, they will never have this kind of chance again. Bottom line, oil analysts say crude next year will average around $24 a barrel. If the price goes up, oil shares and especially drilling companies could have a very big move.[?]
I'd play it through the Energy Select Sector SPDR, symbol XLE, a unit investment trust that trades on the American Stock Exchange. Royal Dutch/Shell Group recently cut its reserve estimates, so maybe there's a bit less oil around than people seem to think. In that case, exploration will have to increase significantly, which would benefit oil-service companies such as Schlumberger and Diamond Offshore. I also like the majors, such as ChevronTexaco, as well as Anadarko Petroleum.

Q: What is the outlook for other commodities?
Faber: Many commodities had big moves in the past two years, but the soft commodities, such as coffee, sugar and orange juice, remain extremely depressed. The price of coffee has been so low that planters have cut the coffee trees and switched to soybeans. The Chinese will drink more coffee in future. If China on a per capita basis started consuming as much coffee as Taiwan and South Korea, they would take up the entire world production. A natural disaster could also push up prices. Coffee is now selling for 68 cents a pound. The high was $3.40 in 1977. It's been a bear market since then. Sometime in the next three years, the price could easily triple. I haven't found a suitable coffee-plantation company. You have to buy coffee in the futures market. Or store five tons in your kitchen.

Q: Should we short Starbucks?
Faber: Not necessarily. But I would short some other things, including the U.S. housing industry, which is reaching a peak in growth rates and earnings momentum. I would short a basket of home builders, including Centex, Hovnanian, Toll Brothers and Lennar. I would also short semiconductor stocks, which you can do through Semiconductor HOLDRS. You could also short the SOXX [Philadelphia Stock Exchange Semiconductor Index], or individual stocks. There will be huge supply coming out of China. The Chinese made inroads first in textiles, garments, footwear and toys and now are moving heavily into the production of high-tech gadgets. Pricing will remain disappointing, and semi stocks will ease again.
On the long side, I'm concerned the Chinese economy will slow, and commodity prices will ease. Nickel is up five times from its low. Weakness in China probably will be combined with some disappointment in the U.S. There are five major currencies in the world: the U.S. dollar, the euro, the yen, the renminbi and gold. The price of gold will move up in the next few years. It has hardly moved in euros or Swiss francs. As people lose confidence and faith in paper money, they will buy gold. Silver will outperform gold. Near-term, gold is overbought. Maybe it falls to $360 an ounce. But in the longer term, all of you should own some gold.
Schafer: What is the best way to buy it?
Zulauf: You buy gold through your bank.
Gabelli: A bar of gold, 2.4 pounds, is one kilo.
Faber: Or you can buy an index of gold shares. I buy Krugerrands [South African gold coins].

Q: A drop to $360 is a big move, considering gold is selling for $420 an ounce.
Faber: The decline might not materialize. But if it goes to $360 and later to $3,000, what do you care? In a system where central banks can print an infinite amount of money, the one currency that doesn't rise as fast as paper money will appreciate in the long run.
On another subject, I would buy euro-denominated bonds to hedge against the falling dollar. You will not see much inflation in Euroland, and European Central Banks potentially could cut rates.
Gross: German bonds are the easiest way to go, five or 10-year pieces of paper. They trade like water here.
Zulauf: The euro is better than the dollar, but it isn't a sound and strong currency, either.
Faber: I agree. This is more of a near-term play. Interest rates bottomed in June 2003, and we are moving to a higher rate structure. In the long run, the shift of wealth from the U.S. to Asia will manifest itself in appreciating currencies or assets in Asia, or a combination thereof. Therefore, Asian real estate -- not in Hong Kong, but in countries like Thailand, Malaysia, Indonesia and the Philippines -- has upside potential. Also, the Indian real-estate market will develop.

Q: There is political risk in Indonesia and the Philippines.
Faber: In Thailand, the political environment is calm. Indonesia is more volatile, but it isn't as bad as people perceive it to be. In India, the geopolitical situation is improving. India and Pakistan are beginning to talk about a peace arrangement for Kashmir. In the last two years in India, there have been more business privatizations than in the previous 30 years combined. I would buy the India Capital Fund, of which I am a director. The Indian stock market has been very firm. We could have some profit-taking in emerging markets that easily could send stocks down 30%. If you aren't prepared to accept that, don't touch them. In the longer term, the most attractive opportunity in India is the real-estate market. It hasn't been developed for the past 50 years.

Q: How do you invest in real estate in India?
Faber: At the moment there aren't any good real-estate plays unless you go there. In China I have seen properties on the outskirts of cities appreciate hugely in price, and the same will happen in India.

Q: Where in Asia are there investment vehicles people can trade?
Faber: Countries such as Myanmar, Vietnam and Cambodia have stock markets, but they are difficult to trade. At this point, I'm talking about direct investments. In the 19th century, the foreigners who bought American securities mostly lost money. The people who moved to America and built up businesses made money. So did the people who moved here later and bought real estate.
Nonetheless, I'll give you some ideas. Malaysia was up only 26% last year. You can buy an ETF, iShares MSCI Malaysia (Free) Index. Hedge it by shorting the China Fund, a closed-end fund, which sells at a 50% premium to net asset value. Two years ago it was selling at a discount to net asset value. It's a great short.

Q: Do you have any other stocks?
Faber: In Thailand, the banking system is improving. I like Thai Military Bank, which is partly owned by the prime minister. He paid about three times what the shares are worth now. He's one of the richest men in Thailand. Not exactly the type I would go out drinking with, but he's the best option for Thailand. The Thais were happy-go-lucky people, and he put them to work. The country's economy has improved significantly, and exports to China were up 70% this year.
Zulauf: He cleaned out the drug barons. Serious foreign investors are now putting money in Thailand.
Faber: I'm not sure Thailand has been totally cleaned, but it has improved. In Thailand there are some publicly traded hospitals. One is called Bangkok Dusit Medical Services. I own the shares but I've owned them at lower levels. Another, Bumrumgrad Hospital, went public last fall. Both are very good chains. The Thais have some competitive advantages, especially in orthopedic surgery, because there are so many traffic accidents. In the U.S. health-care expenditures in 2002 rose 9.3%, to $1.6 trillion. That's 14.9% of GDP, or $5,440 on a per capita basis. In China the GDP per capita is $1,000. The cost of production in this country is prohibitively high because of health-care benefits paid to employees. The cost of insurance is incredible because of legal issues. In part that is why we have such imbalances between the U.S. and Europe, and emerging economies.

Q: You've just come from Argentina. How is Latin America?
Faber: Argentina's market has gone up fivefold from the lows. It isn't an outstanding value. Argentines don't think their real estate is a great bargain, but you can buy 100,000 hectares for very little. In terms of equity markets, Brazil, Peru, Venezuela and Argentina had some of the best performances in 2003 of any markets in the world. There isn't much value left.

Q: Thanks for the update, Marc.

Mario Gabelli

[As Marc winds up, Mario moves a large black plastic bag from a nearby counter to the table.]

Q: Are you going to take that thing out of the bag?
Gabelli: Be patient. It's a cousin of someone who was impatient. First, let me recap what I said earlier today: The economy will be up 4% in '04 as exports pick up, inventory is rebuilt and capital spending is fueled by rising business confidence. Earnings will rise sharply because of productivity gains and the effect of the strong euro on reported earnings. Interest rates will move up to 2% on the short end and 5% on 10-year Treasuries, which presents a headwind. I want to focus on exports to China, commodities and old age, but we'll also need to watch the five Ds -- the dollar, deficits, dividends, deals and Dean. [After the Democrats' Iowa caucus Tuesday, more eyes are likely to be on Massachusetts Sen. John Kerry than former Vermont Gov. Howard Dean.] Powerful fiscal stimulus has been added to enlightened monetary policy. Now we need reforms in energy, utilities, telecom, television and tort law. All of this sets the tone for a slightly up market for the year. The first half is strong. Then we worry about '05.

Q: So, how about some investment ideas?
Gabelli: This is a year in which everything works for television broadcasters. Advertising is a $500 billion industry. The television portion of the media pie will be up sharply, because of the election and the Olympics. A rising inflation rate is good for nominal growth in advertising, too. From a TV point of view, the regulatory environment was very muddy last year. We had a green light, red light, green light and red light, and now it's amber. Come the end of January, Congress hopefully will embed in the system a 39% cap on the percentage of the national population that a TV operator can own. Another rule working its way through the courts in Philadelphia deals with cross-ownership of media properties and duopolies. We'll have a green light for acquisitions come February. There is some merger potential in TV stations, after a dry spell.
I'll give you a bunch of names of station operators -- Young Broadcasting, Fisher Communications, Liberty Corp., LIN TV, Gray Television, Sinclair Broadcast Group, Paxson Communications and Granite Broadcasting -- but I'll focus on two. Young has 20 million shares outstanding and a market value of $380 million. It's got $725 million of debt less $110 million of cash. Vincent Young sold the company's Los Angeles TV station and made a lot of money. He bought a station in San Francisco and is going to lose a lot, but will declare victory and sell it at a big discount. He paid about $750 million for KRON and should sell it for about $400 million. After taking a tax loss, he'll get $500 million. You wind up with a company with very little debt and a wonderful array of TV stations that will generate close to $70 million of broadcast cash flow. The stock will double as soon as he announces a deal to sell KRON.

Mario Gabelli's Picks

Company Ticker Price 1/9
Young Broadcasting YBTVA $19.79
Liberty LC 47.17
Tribune TRB 51.24
Roto-Rooter RRR 56.71
Sybron Dental Spec SYD 29.33
Del Laboratories DLI 26.94
Fedders FJC 7.40
Dana DCN 19.50
Vivendi V 26.02

Q: And your second name?
Gabelli: Liberty, based in Greenville, S.C., is a more conservative play. It, too, has 19 million shares but sells for 47. That's $900 million in market value. The company has about $80 million in cash and $50 million of other assets. Broadcast cash flow in 2004 will be approximately $95 million. Based on possible transactions, Liberty has a takeout value of $70 a share. The company has been buying back stock. It has eight NBC, two CBS and five ABC stations. Liberty's stations would appeal to other operators if duopolies are permitted.
Fisher has two major-market TV stations, one in Seattle and one in Portland, Ore. They put themselves up for sale. The stock is around $50. Major markets are hard to find. LIN TV is extraordinarily well run. It has 50 million shares, and the stock is 25. Hicks Muse owns a lot of stock and will sell it off in the next couple of years. The company is likely to have $175 million in 2004 broadcast cash flow, so it's selling for about 10 times broadcast cash flow.

Q: Won't the sales pressure the stock?
Gabelli: So what? The intrinsic value of the enterprise is growing. If they allow you to buy stock cheaper, you should be happy.
Now, a quick comment on Tribune. I like Dennis FitzSimons, the new chairman and CEO. The stock sells for 50; there are 350 million shares, and $17.8 billion of market value. Earnings will be $2.40 a share this year, climbing to $3.25 in '06. The company has world-class properties. It has duopolies in New York, Chicago and L.A., and is rebalancing its portfolio by adding more TV stations. Gannett already has said that as soon as the rules flash green, it will go out and buy. They have their sights on Knight-Ridder or Pulitzer. Hopefully, they will buy Media General. I'm not recommending the stock, just mentioning it.
Now, let me give you a concept. I started my career as an auto-parts analyst. There are 600 million cars on the road worldwide, and we manufacture 50 million new ones every year. Then I migrated to airline parts. There are 12,000 aircraft worldwide, and we make 1,000 every year. Now we're migrating to body parts. [Rolls down the black plastic to reveal...a model of a skeleton!]
Art Samberg: I don't want to see this.
Gabelli: There are almost 300 million people in the U.S. As they get older, they're keeping their natural teeth longer. There are 32 teeth per mouth, which means a market of 9.6 billion teeth. As you keep your teeth, you spend more money per natural tooth. There are fewer dentists. Therefore, dentists are making more money. And orthodontists are making a lot more. Twelve percent of the U.S. population is over 65. In 20 years that number climbs to 20%. By 2025 that will be 72 million people. How do we make money from the aging population?
Samberg: Extractions.
Gabelli: Let's start with Roto-Rooter. When I recommended it two years ago, everyone started singing the jingle. The stock was 30-35, with 10 million shares. It used to be called Chemed. Roto-Rooter has an investment in a company called Vitas, the largest hospice company in the U.S. The average hospice patient is 75 years old. The market is growing substantially. Odyssey HealthCare contemplated a bid for Vitas, but Roto-Rooter instead is buying the two-thirds of Vitas it doesn't own. They announced a deal two weeks ago, and the stock went from 37 to 57. Until Jan. 24, someone can top them. Here's what happens after: Roto-Rooter will pay $310 million and absorb $75 million of debt. Pro forma, the company will generate revenue of $800 million in 2004, which will grow to almost $1 billion by 2006. The hospice market is growing 20% a year, driven by a better understanding of its impact. It is becoming more accepted by medical practitioners. I think Roto-Rooter will keep its other businesses but change its name to Vitas. Thus, two companies in one. We look for this sort of transforming transaction.
Meryl Witmer: How does a hospice make money?
Gabelli: They charge about $125 a day. The average patient uses a hospice for 50 days. The hospice provides home care. Medicare pays about 81% industrywide, but in Vitas' case, it's lower. There are about 2,300 certified hospices in the U.S., with about 500,000 patients. Roto-Rooter can earn about $4 a year, assuming it doesn't do any spinoffs, and Vitas keeps growing by 20%.
Next, obesity. For whatever reason, some people in the U.S. are obese. There are several ways to reduce obesity, other than through self-discipline. One is the gastric intestinal bypass, which makes use of a laparoscopic band. Inamed -- IMDC -- has three intriguing products, one of which is used to treat obesity. There are 34.5 million shares, and the stock sells for 43. The current TV series Nip/Tuck is all about plastic surgeons and cosmetic alterations. Queer Eye for the Straight Guy is about fashion makeovers. This is a social trend. Inamed makes a collagen filler for the face. People use it. They feel happy and healthy. Collagen is an $80 million business going to $130 million. Inamed also makes breast enhancements. Even without FDA [Food and Drug Administration] approval for new products, this business is growing to $320 million from $180 million because the company sells around the world. The third business is the obesity band; sales are going from $60 million to $300 million. In all, the company is growing revenue by 17% and earnings by 22% a year, even without the benefit of a new type of breast implant. [For more on Inamed, see Follow-Up]
Schafer: What are the numbers?
Gabelli: For '04 Inamed will earn about $2 a share, growing to $2.60 and then $4.50. Cash flow is strong. They have a modest amount of debt. They will have $18 a share in cash in about five years. Short term, the stock has been hit by the FDA's rejection of silicone-gel breast implants. It has created an interesting buying opportunity.
Now, back to teeth. I mentioned the dental suppliers in last year's Midyear Roundtable ("Happy Daze," June 23, 2003), and I am buying them all. The list includes distributors Henry Schein and Patterson Dental and manufacturers Dentsply International, Young Innovations and Sybron Dental Specialties. In the implant area there are Nobel Biocare, Lifecore Biomedical and Straumann.
Zulauf: These are really expensive stocks.
Gabelli: That's why I'm giving them honorable mention. My pick is Sybron. Now, I have 10 fingers. That's 10 opportunities. But I also have 10 toes. If you listen to Queer Eye, you could apply nail polish once a week. [Points to a display of nail polishes on the table.] A number of U.S. companies could benefit from this trend.
Samberg: Are you about to recommend Revlon?
Gabelli: One product that intrigues me is Sally Hansen Hard as Nails. [Tosses a bottle at Meryl]. It is made by Del Laboratories, which has 9.7 million shares. The stock is 26, and the company has a $270 million market capitalization. Ebitda for 2004 is about $50 million. Some of its products are worth its entire market value. Del Labs makes Orajel, for tooth and gum problems. Then there's a new product even Women's Wear Daily got excited about. It's called Airbrush Legs. There is a trend away from pantyhose. This is a spray-on leg make-up, which comes in four shades -- light glow, medium glow, tan glow and deep glow.

Q: Suppose you don't want to glow.
Gabelli: Don't ask me anything. There is only so far I'll go. A can costs $9.95. It will be available this spring. Next, I've got a company that relocated all its plants from the U.S. to China. It now has a relationship with a Home Depot-style store in China. It is going to sell products not only in the U.S. but in China, Indonesia and India. The product is an air conditioner, and the company is Fedders. The stock is $7. There are 30 million shares and $150 million of debt.
In the U.S., the window-air-conditioning market is $4 billion. Fedders has 20% or 25% of that. The industry has seen price deflation for five years, though pricing has stabilized. The company is going into the central-air business, which is a $9 billion market. People in the trade think they have a good product. But the big play is selling air-conditioning in China and other Asian countries. Fedders is partnering with everyone in China. The company is going to earn 30 cents a share in 2004.
Faber: There is tremendous overcapacity in the appliance field in China. There are at least 50 bigger companies that will eat them alive.
Gabelli: Fedders makes two million window units a year for shipment to the U.S. They have distribution. Prices, as noted, are stabilizing. It might be worth a fresh look.
My next pick is Dana, the auto-parts maker. The stock trades for 19½-20, and there are 150 million shares outstanding. The company was highly leveraged and got caught in the downside of the auto cycle. ArvinMeritor launched a hostile bid. Dana stood its ground and ArvinMeritor went away, but the attack changed its culture. The company is selling its aftermarket business. Goldman is handling the auction. The first round of bids is due any week. I think they can get $1.2 billion-$1.5 billion for the business, which has some wonderful parts. On a pro forma basis, assuming the sale, they will have $8 billion in revenue this year and earn more than $2 a share. They will have about $700 million of debt. Over the next four years earnings will march upward, to around $4 a share, and cash flow will be more than $1 billion. Dana generates revenues of about $400 million a year on heavy-duty trucks. They make engine products. This is a large original-equipment company where earnings are turning around.
John Neff: Has Dana's asbestos problem been taken care of?
Gabelli: If you want to create jobs, you have to come to grips with tort reform.
Schafer: Is that a yes or a no?
Gabelli: You know it's a no. It hasn't been resolved. Just a kind word for another old friend: Jean-Rene Fourtou, who took over Vivendi Universal, has done a fabulous job. Vivendi has 1.1 billion shares. The stock trades for 26. They have merged most of their U.S. entertainment business into NBC, which is packaging Vivendi's products, the old Universal Studios and MCA. They gave Vivendi $4 billion in cash and 20% of the new NBC. Whether General Electric decides with [NBC head] Bob Wright to take it public or not, I can't say. But it's a very good business. The combined network, NBC stations and Universal Studios will do $15 billion of revenues over the next three or four years and close to $4 billion of Ebitda. When the dust settles, they'll own 56% of a wonderful telephone business in France called SFR. Vodafone owns 44% and wants to buy the balance. SFR will do about euro3 billion this year. It will be worth eight times Ebitda. Monaco Telecom and Maroc Telecom are worth another couple of billion. Canal Plus is a wonderful business. This is a great way to play the strength of the euro.
I'm also throwing in a kind word for Time Warner. [CEO Richard] Parsons is doing a terrific job. The stock is 18. Comcast owns 22% of the cable operation. As it deleverages, Time Warner may spin off or create an IPO for its cable businesses. This will give it a currency to pay off Comcast and buy Cablevision.

Q: Does the Dolan family finally want to sell?
Gabelli: They have announced publicly that they're going to package their satellite assets and cable networks and spin them off to shareholders in the next 90 days. That's worth $10 a share, marked to model. That leaves the cable business. [Cablevision Chairman Charles] Dolan has said: "We're extraordinarily valuable. If somebody comes to make love, they should bring more than a dozen roses." But given his passion for the New York Knicks and Rangers, I can't believe he would sell without spinning off Madison Square Garden.
Faber: Mario, what do you think of digital radio?
Gabelli: It makes a lot of sense, particularly if you can take it out of your car and put it in a boom box.
Samberg: Are you short any radio stocks?
Gabelli: I am not long, because valuations reflect their underlying potential. But it's a good question. If a technology comes along and fragments the existing base of an industry, costs rise dramatically. It's an overhang on Viacom and Clear Channel. Next year I'll bring in a boom box.

Q: We can't wait. Thank you, Mario.

Subscribe to WSJ & Barron's Online @ http://www.wsj.com

....Jen

-- posted by Jen_

Top 846. Jan 25, 2004 7:23 PM

» MarketVVizard - James Dines

[Thanks again for posting the Baron's Roundtable by the way. I see Faber is shorting the home builders, bet that will be a good call, as well as his other picks].

Any James Dines fans out there? I don't know anything about him but he was a guest on a radio show I listened to Friday evening. He was hyping his newsletter and stated that in the upcoming issue he would name some kind of top pick, a highly undervalued copper producer. He gave enough info for me to track down the name of this mystery company. It is Grupo Mexico SA de CV (GMBXF.PK). But its already up 50% this month and up 150% since a few months ago (he probably has a massive front running network for his newsletter). Anyway, maybe worth a speculative gamble for those that are so inclined. I don't trade low volume BB stocks (actually, I don't trade BB stocks at all). This company is the 3rd largest copper producer in the world, and 4th largest silver producer in the world. Lots of info can be found on their website:
http://www.gmexico.com/

All the tiny speculative mining and commodity stocks have been going though the roof lately. Reminds me a lot of the internet days... hope it works out for those playing that game. I'll give them one thing, fundamentals look terrific in light of the inflationary environment we have seen in the last year.

-- posted by MarketVVizard

Top 847. Jan 26, 2004 5:26 AM

» Austrian - Re: James Dines

In response to message posted by MarketVVizard:

VViz,
I am playing the small "undiscovered" exploration and mining companies. Riskier then playing the big boys without a doubt, but the reward potential makes the equation work for me.

I am playing the market this way due to the fundamentals of gold, silver and natural gas (commodities in general but I am targeting the above). The fundamentals as I understand them is the price of the commodities were so low for so long real effective exploration was not a profitable venture, so with some small exceptions, no real exploration to production has occurred.

The big mining companies managing themselves very effectively circled the wagons and did everything they could to survive very very low commodity prices. This means, they were correctly very conservative, but now are not leveraged to take advantage of the recent rise in prices. The juniors, the explorers, and yes even the wantabes are better positioned to find and develop new resources. The most logical outcome, provided they survive, is either to be bought out, or become a junior mining company. Either way, a major will be willing to pay very considerably for proven reserves. A total spend of $350 per oz of gold is not out of the question going forward.

Juniors typically secure land rights and permits for around $20 per oz. So the rest is mining costs. If the find is rich enough, etc, and the junior's float is small enough, say less than 60 Million shares preferably smaller, the payoff could be gigantic. Simply listing on the AMEX and getting the price over $5/share makes it fair game for institutional investors.

Another reason I am playing the Golden Bull in this way is I think the downside risk for any of these stocks in a bull market are minimal. A rising tide during a bull market lifts all boats. This is a bull market in commodities. Volatile enough to cause ulsers, but a bull non the less.

If this doesn't work out, I've been eyeing a double wide in Arkansas...

Regards,

-- Austrian

-- posted by Austrian

Top 848. Jan 26, 2004 3:10 PM

» MarketVVizard - SOX and NVLS in particular are getting KILLED afterhours...

I wish I was short a LOT more NVLS. This is really what I was expecting. Will be interesting to see what happens tomorrow especially in light of today's huge rally. Whoever was buying those thousands of puts a couple days ago is making an absolute killing (they will probably be investigated I'm sure, but a great trade nonetheless).

____________________________________________________
UPDATE - Novellus says profit up, but warns of softness Monday January 26, 5:36 pm ET By Daniel Sorid

(Recasts, adds outlook, CEO comments, updates stock) SAN FRANCISCO, Jan 26 (Reuters) - Novellus Systems Inc. (NasdaqNM:NVLS - News), a producer of microchip-making equipment, on Monday reported a higher quarterly profit as chip makers invested in new factories, but warned that conditions for business in the current quarter could become softer.

Shares of Novellus stumbled as much as 7.6 percent in after-hours trading.

San Jose, California-based Novellus said profit in the fourth quarter ended Dec. 31 jumped to $10.5 million, or 7 cents a share, from $3.0 million, or 2 cents, a year earlier. Sales rose 4 percent to $226.5 million from $217.6 million in the same period last year.

For the current quarter, however, Novellus forecast a profit of 8 cents a share -- at the lower end of analyst expectations -- on revenue of $240 million to $250 million.

Chief Executive Richard Hill told analysts in a conference call that customers in the past week have been "trying to be more conservative on capital expenditures, so we're taking a conservative approach on what orders would be during the first quarter."

Also on Monday, Novellus named a former executive vice president of arch-rival Applied Materials Inc. (NasdaqNM:AMAT - News), Sasson Somekh, as its new president.

Orders, an indicator of future revenue, were expected to grow to $305 million to $315 million, from $283 million in the fourth quarter.

Investors, who have traded shares of chip-related stocks to higher and higher levels on expectations for a strong business turnaround, turned sour on Novellus shares after hours. The stock fell as low as $37.20 from a regular-trading close of $40.25.

Analysts on average had expected earnings in the range of 7 cents to 15 cents a share in the first quarter, with an average estimate of 11 cent, according to a survey by Reuters Research, a unit of Reuters Group Plc.

-- posted by MarketVVizard